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OBR deals new blow to public and private sector pensioners

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date: 30 November 2011

embargo: For immediate release

As public sector workers take part in the biggest strike for a generation today (Wednesday), a new paper from the Office for Budget Responsibility (OBR) predicts that the gap between CPI and RPI inflation will increase to 1.4 per cent in future - cutting the value of public and private sector pensions in payment even more than previously forecast.

The government has changed the way that it uprates public sector pensions in payment from the RPI measure of inflation to the CPI measure. This has been followed by many private sector pension schemes.

In the past the difference between the two measures had been around 0.7 per cent to 0.9 percent but the OBR say that in future it will be 1.4 per cent. The OBR paper says:

'Further analysis in this paper suggests that a plausible range for the long-run difference between RPI and CPI inflation is around 1.3 to 1.5 percentage points. For the basis of our November 2011 EFO, we assume that the difference between RPI and CPI inflation is around 1.4 percentage points in the long run.'

The switch to CPI will reduce the value of all public and some private sector pensions in payment by around 1.4 per cent a year. Over 15 years this will reduce the pensions paid by 17.4 per cent, says the TUC.

TUC General Secretary Brendan Barber said: 'The switch to CPI inflation is a government attack on public sector pensions. And while they keep trying to divide public and private workers, private sector pensioners are also seeing their pensions cut by this change.

'This stealth cut to pensions blows another huge hole in the government's false claims that pensions are staying the same for public sector workers. It's now pay more, work longer and get even less.'